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Get a Business Loan with Bad Credit

20 Methods to Get a Business Loan with Bad Credit in 2021

Think your dreams of owning a business are dashed because of a low FICO score? Not so fast! Here’s how to get business loans for bad credit.

Nearly a third of all Americans have a credit score lower than 601. With 27.9 million small businesses in the United States, a lot of those owners probably have bad credit. So, if you own a business, have bad credit, and are also low on liquid capital what do you do?

Here we discuss business loans for bad credit. Not only what you should consider before applying for the loan, but also how thinking creatively can help you come up with the necessary funds.

What Is Considered ‘Bad Credit?’

Your FICO credit score is determined by several different factors. Your amount of debt, how timely your payments are if you’ve ever been sent to collections, and how much debt you hold compared to how much credit you have. These factors are compiled together to give you a score between 300-850.

This determines how trustworthy you appear in the eyes of lenders. When there are several negative marks in these key areas, late payments, maxed-out credit cards, repossession, or eviction, your score starts to go down.

  • Any score ranging from 300-579 is considered very poor/bad.
  • 580-669 is considered fair.
  • 670-739 is considered good and anything
  • above 740 is basically excellent.

 

If your score is on the low end of this spectrum borrowing money and applying for credit could prove difficult. If you own your own business and need a loan to help it flourish you will have to think outside of the box about business loans for bad credit.

Thinking Creatively About Business Loans for Bad Credit

First, make sure you really do need the money. Go through all of your financials. Determine the least amount you need to make it through the rough patch. The less money you need to borrow the more resources you’ll have at your disposal. Most people overestimate the amount they need to get going. Get it down to exact dollars and cents.

If you have exact figures lenders will take you more seriously. Make sure you are using all the resources at your disposal. Ask friends and family who understand what you’re trying to accomplish. Ask if they would be willing to give your business a loan. If they support you and have the funds they may give you a loan or even a gift to help your business get off the ground.

Consider funding sources outside of traditional banks and credit cards. There are a bunch of web-based lenders. These lenders are more able to take on risks because of their low overhead. It’s easier to qualify for more money when your score is above 500. Make sure you’re trying to build your credit during this time to make it as attractive as possible.

Seeing recent jumps in your score is favorable to lenders as well. If you want free money you need to research gifts and grants. Government grants and other sources of free money are out there for the taking. This does require lots of research and dedicated time to accomplish. Be a skeptic when coming across services offering to do the research for you. They could be looking to make a quick buck off people without one to spare.

Doing your own research will save you money and time in the long run. Are you in your first year of business? Leverage your startup status and take advantage of the money available to you as a new business. If you need less than $35k you can apply for an SBA loan or grant. Turn to crowdfund sources to get the people who love your new brand to help fund it. Have a huge sales order but low on funds to complete it? You can turn your large customer invoice into a cash advance using different online lenders.

Be wary of going the cash advance route. Check interest rates and make sure you will be able to pay up when they come due. This can be a risky endeavor. Look for loan options that specialize in helping those with bad credit. Research credit cards to apply for that will help build your credit.

Building Business Credit Takes the Pressure Off

There is another route to consider when trying to get funding for your business. Taking your personal credit out of the scenario can be exactly what you need to do. One of the best ways to avoid involving your bad personal credit in your business is to build your business credit. Open files with all the major business credit bureaus: Experian Business, Equifax Business, and Dunn & Bradstreet.

Start building great business credit quickly by finding 3-5 business credit cards. Get approved and start putting transactions on them. Let the balance carry for a month while paying it down by half and then continually pay off balances month to month. Soon your business credit will start to rise. After you have a solid business credit score banks are more likely to lend to your business directly.

Securing funds for your business can be difficult, especially if you don’t know where to start. Having bad credit can make this even harder, but that doesn’t mean it’s impossible.

Traditional banks and credit unions may hesitate to approve a business loan if you have a bad credit history. Alternative lenders are “alternatives” to conventional banks, can help you get a small-business loan if you have a bad credit score.

Some of these lenders, like Sunwise Capital, don’t require a minimum credit score and instead approve loans based on revenue or time in business.

If you understand how bad-credit small-business loans work, you can find the best bad-credit business loan to start or expand your small business.

There are ways to get the business loans and funding you need even with bad credit. From solid planning to Kickstarter, here are 20 methods that you can use to get a business loan with bad credit.

Look for Peer-to-Peer Lending

Dealing with financial institutions is a complicated process. They’ll want your financial documents, and they’ll want to do credit checks. Peer-to-Peer lending is an option that will allow you to skip this process entirely. It can give you quick access to your funds without having to jump through all the usual hoops.

It’s a brand-new perspective on borrowing and lending. By avoiding traditional financial institutions like banks, borrowers may access funds more quickly, and investors may see a healthy return.

Peer-to-peer lending, also known as P2P lending, allows individual investors to fund loans (or portions of loans) to individual borrowers. Peer-to-peer lending, sometimes known as marketplace lending, is becoming more popular as a substitute for traditional loans.

Both borrowers and lenders benefit from this lending system. After being turned down by other lenders, some borrowers may be able to find a personal loan. Peer-to-peer lending platforms may be an excellent alternative to payday loans or credit cards for some people.

You may be eligible for a low interest rate based on your credit score. On the other hand, lower credit scores will almost certainly be subject to higher interest rates, which can sometimes exceed the average credit card APR.

Fix Your Personal Credit

Your personal credit can play a significant role in getting a business loan. Getting a credit score based on your business history is difficult if you haven’t established your business. This means that it’s essential to work on your personal credit before you try to secure your business loans.

The easy way to fixing your credit is to review your credit reports for errors and dispute them, pay delinquent accounts, pay bills on time, increase your credit limits, pay off high-interest cards, and make on-time payments to improve your credit.

Have Cosigners

Lenders are much more willing to lend you what you need when you have a cosigner. When approaching a potential cosigner, you need to make sure that you don’t seem too pushy. Getting a cosigner can be a delicate process, but having one will make it much easier to get a loan for your business.

Lenders usually only allow relatives or close business associates to cosign a loan, such as an investor or a senior employee, for business loans. It’s ideal to have a cosigner with good credit, a low debt-to-income ratio, and a steady income.


Prepare Your Documents

Lenders want to know that you’re a safe bet before they lend you money. Proving that your business is generating revenue and having all your documents ready is the way to do this.

A company can’t function without its business documents. A business requires a specific set of business documents to buy and sell products, communicate, learn how to be more efficient, manage a business, and operate one. It is safe to say that a company cannot function properly without business documents.

Furthermore, every business should implement a system for adequately documenting its records. Failure to maintain accurate records can result in delays, fines, and even the cancellation of an important transaction.

Businesses should establish long-term processes with appropriate documentation. A document repository that you can access at any time is critical.

As a result, data processing and recording become more efficient. The process is easy once you build the documents repository and you create procedural norms. In theory, every company should have a list of documents that it needs to operate.

All books, records, files, business records and plans, reports, correspondence, documentation in respect of agreements, and other financial and customer data used or held by the Transferring Company in connection with the Transferred Business, whether in a paper, electronic, or other formats, are considered business documents.

All contracts, agreements, meeting minutes, documentation, and other business documents fall under this category. Businesses frequently use data and documents to improve their operations. Every successful business maintains a system for keeping track of these records.

To give an example, here are a few of the documents you should have ready:

  • Income Statements
  • Balance Sheets
  • Tax Forms

Be sure to get your documents well organized before you take them to a potential lender. Excellent organization skills will help your chances.

Have a Solid Business Plan

A strong business plan can make a world of difference to a prospective lender. Additionally, the more well-developed your idea, the more likely you will be able to secure the necessary financing. Numerous resources, like Googling ‘Business Plans’ are available to assist you in creating the best plan possible. You can either download business plan templates or consult with professionals to assist you in developing a solid business plan. You will undoubtedly impress the lenders if you do it correctly.

Banks finance the majority of successful businesses. These banks provide loans to small and medium-sized enterprises at market rates. They have no desire for control, certainly not beyond the terms of the loan agreement. On the other hand, bankers despise being in charge. Bankers are not interested in owning your business because they make loans and do not require equity in a company. Another reason is that they are not always skilled at business management.

The first thing a banker will ask for is a copy of your business plan.

NOTICE: BUSINESS PLANS ARE NOT REQUIRED WITH THE AVAILABILITY OF ALTERNATIVE LENDERS. ON THE OTHER HAND, HAVING A PLAN ASSURES THAT YOU REMAIN FOCUSED ON YOUR ULTIMATE GOALS.

A business banker’s primary job is providing debt financing. The concept is simple: you borrow money and repay it. You make periodic principal and interest payments or interest-only payments over a specified period. If you obtain an interest-only loan, you will be required to complete an end-of-term balloon payment of the principal. What is the one advantage of debt financing over equity financing? The entrepreneur retains control of his business.

Bankers have a reputation for wanting little, if any, say in the business’s day-to-day operations. If you default on a payment, you will certainly discover a slew of covenants in the loan documents. Loan covenants can range from requiring you to maintain a certain level of working capital to preventing you from making some purchases or approving leases without the bank’s written approval. Have your CPA or business attorney review and explain your loan agreements before signing.

The primary objective of a banker is to recover the bank’s funds while earning a reasonable profit. Bankers consider various factors when determining your chances, including a clear explanation of why you require the money. Additionally, bankers are interested in your intended use of the funds. Additionally, the bank is interested in learning about any other borrowing or leasing arrangements you may have.

Bank applications for a loan can be as lengthy and detailed as a comprehensive business proposal. Business plans, on the other hand, are not interchangeable with loan applications. Your optimistic growth projections may not pique a banker’s interest. When faced with the type of growth projections required to entice a venture capitalist, a bank may be unenthusiastic. On the flip side, the bank will be looking for a backup plan that will enable you to repay the loan in the event of a default.

Bankers will seek responses to the following five questions:

#1. The first consideration should be cash flow. Financial health is perhaps the most persuasive argument a business owner can make to a banker. Are you able to demonstrate that your cash flow is sufficient to cover the loan’s principal and interest payments? By the way, you’ll need more than just a cash flow forecast. Most bankers have required cash flow, balance, and income statements for the last three years. Bear in mind that you must also file your federal tax returns for the same period.

#2. There is a safety net in place. If you’re starting a business or working with an unfamiliar banker, you’re unlikely to borrow money from a bank without pledging cash or other assets as collateral. If your business experiences a setback and you cannot repay the loan with operating profits, the bank may repossess and sell the collateral to recoup some or all of the funding you borrowed. It could be inventory, equipment, machinery, or, much more frequently, the equity in your home.

What type of collateral do bankers like to see? For the most part, the banks have no interest in buying used equipment or your home. They discovered that businesspeople who take calculated risks with their assets outperform those who do not.

#3. The presence of a co-signer on the document. Lenders benefit from the co-additional signer’s layer of security. If your credit history is suspect, a co-signer (who effectively lends you their credit score) can mean the difference between success and failure.

#4. Marketing techniques. Bankers are more scrutinizing about marketing plans embedded in business plans. The banker will consider competitors, price wars, clones, the erratic behavior of the public, and other market uncertainties.

Your banker (and the overwhelming majority of other investors) will want to know that you understand the risks and have developed mitigation strategies. Additionally, your operating cash flow is to repay bank loans.

#5. The ability to lead. Bankers frequently emphasize their services’ personalized nature. Numerous lenders express an interest in lending money based on the borrower’s character and financial stability. Bankers consider the borrower’s track record and ability to manage when assessing a loan application. Without a doubt, demonstrating that you’ve successfully other businesses, your odds of obtaining a startup loan will increase significantly.

Bank loans are best suited to established businesses with sufficient cash flow and assets to maintain and secure the loan. Bankers are unlikely to give startup capital to transform a concept into a business and even less likely to provide seed capital to validate an idea except if you already have a history of successfully launching previous companies.

Bankers almost always lend money to those who do not require it. They will give you an umbrella only if the sun is shining. Bankers favor lending to businesses that are close to being financially sound enough to achieve their objectives on their own. They have a natural inclination toward caution.

The above paragraph is a critical concept to comprehend because it influences how and when you borrow. Predict when you will require funds and establish a credit line or another type of loan in advance. It will be simpler and frequently less expensive than waiting until you are a desperate and less credit-worthy borrower in the eyes of bankers.

Offer Collateral

Collateral is an asset (usually cash, real estate, or other valuable hard assets) pledged by the borrower to the lender for the duration of the loan, is frequently used to secure business loans. Defaulting on a loan means the lender has the right to seize and sell your collateral to cover the debt. Lenders will use your collateral to reduce the risk of losing money on the loan.

Bringing collateral is a more significant risk for you, but it will make you a much safer bet for lenders. One of the best forms of insurance is your home. Yes, this is a significant risk, but you will be much more likely to secure a substantial loan that will take your business to the next level.

There are other forms of collateral that you may be able to use such as:

  • Blanket Lien
  • Inventory
  • Insurance Policies
  • Investment Accounts

Shop Around for Different Lenders

It’s similar to looking for a good deal on a car when finding a lender. It’s not always a good idea to accept the first offer that comes your way. If you shop around for different lenders, you will avoid getting taken for a ride.

Accepting a high interest rate simply because you don’t believe you can get a better deal isn’t a good reason to do so. Don’t be afraid to speak with several lenders before making a decision.

It can be challenging to sift through all of the available lenders before selecting the best one.

Small business owners frequently seek financial assistance from lenders to cover a variety of business expenses. On the other hand, finding the right lender can be difficult in and of itself.

What to Look for in a Lender for a Small Business

For small business owners in all industries, finding the right business financing lender is a challenge. You want to make sure that the lender you choose is reputable and capable of helping you with all of your business requirements.

Do yourself a favor and keep the following six tips in mind when looking for small business lenders to make the process go more smoothly:

1. Check with the Better Business Bureau to see if they have a good rating.

Look into the lender’s background and see if they’ve won any awards. A variety of businesses, including financial institutions, are given ratings by the Better Business Bureau (BBB). If you see an “A” rating, you know you’re dealing with a reputable company. Anything less than an “A,” and you should proceed with caution.

Check to see if the lender is a member of any other financing organizations relevant to your needs and if they have won any national awards or publications.

2. Find out how flexible the lender is.

Banks aren’t always the most accommodating when it comes to loans, as you’re probably aware. Consumers with excellent credit, a large amount of collateral, and long business history are good candidates for bank loans.

Your company may or may not be able to afford costly equipment. The lender you work with should be flexible enough to make the lending process as simple as possible.

3. Find out about the company’s past.

Check with other business owners, friends, and acquaintances to see if they’ve used alternative lenders to meet their financing needs. Conduct an online search for honest reviews to get some feedback.

You’ll almost certainly get a variety of viewpoints because everyone is in a different situation. Use discernment and common sense.

4. Compare different lenders.

As many sages say, “Don’t put all your eggs in one basket.” Instead, locate a few direct lenders and make some solid comparisons. What is the average rate of interest for their loans? What types of programs do they provide? How long will their term loans last?

The best lenders are those who receive perfect scores across the board.

5. Look for a lender with excellent customer service.

One of the most decisive factors is the level of customer service provided by a lender – or any other type of business. They should, ideally, be reachable via a variety of communication channels, including phone, email, and live chat.

People who are well-informed, pleasant, courteous, and professional should are a consideration. Financing can be a stressful process, so you want to make sure the lending company is patient and helpful.

6. Find out what kinds of loans the lender offers.

The lender you choose should, ideally, provide customers with a variety of financing options. Since no two companies are the same, and there should be no two identical loan options. As a result, you should have your pick of the litter when it comes to loan programs to use.

Show Your Business History

The history of your business is critical when trying to secure lending. If you haven’t been in business for long, you need to make this a priority. You’ll need to show every little detail of your business to the lender to ensure them that you’re doing everything right. Be able to show them:

  • History of Employees
  • The Industry You’re in
  • Your Past Performance

 

A traditional business plan, the history of your company, should be included in a section devoted to the company’s operations.

It is customary in the traditional business plan outline to include a section on the company, which is typically placed second in the document, after the executive summary, to provide background information to your potential lenders.

The business history is your opportunity to detail the company’s legal entity, ownership, history, intellectual property, and other significant assets.

For newer businesses, the past is rarely a factor in the lender’s decision-making. Indicate only those portions of history that may directly impact strategy, tactical execution, milestones, or metrics, and leave out the rest. Provide the history of the company and its founders. Please include it in a bullet point that is related to actions or the future whenever possible.

The more data you have and the longer you’ve been in business increases your chances of getting the funding you need.

Dress the Part

“Dress for success” is something you’ll hear a lot in the business world. There’s a reason for this. Wearing your best outfit to a meeting with your potential lender can make a massive impact on their decision. In fact, it’s a worthy investment to buy some great dress clothes if you don’t already have some.

According to a recent study, individuals who dress well have increased confidence, a sense of power, and are more detail-oriented. More importantly, well-dressed individuals look like leaders, and they are approached for assistance more quickly than those who are not as well dressed.


Remember to Network

Business networking entails cultivating relationships with prospective customers or clients and other individuals who may refer your business or positively refer your name to others they know.

The better your networking is, the more likely you’ll be to find a lender willing to fund your business. If you can find an investor, you can forget all about your credit score. You need to make sure you are networking whenever and wherever possible.

Work With a Credit Restoration Company

A credit restoration company will help you restore your credit and get the score you need. It’s their job to help you fix your credit so you can get the financing you need to take your business to the next level. Be cautious when picking a company and make sure you do your research. Credit restoration or credit repair is something you can do yourself.

Credit restoration

 

Write Letters to Credit Bureaus

A credit dispute letter will not automatically resolve the problem or improve your credit score. And there’s no guarantee that an item will be removed from your credit report—especially if you don’t have strong evidence that it’s an error. On the other hand, a credit dispute letter is inexpensive and only takes a few minutes to write.

You would honestly be surprised by how much credit bureaus are willing to work with you. If you have some dings on your credit rating that you don’t think should be there, write the credit bureaus. Most of the time, they’ll work with you to get these issues resolved.

Create a Game Plan

 

Create a Game Plan

You need to have a good game plan when it comes to financing your business. Set realistic business goals to help you get a closer understanding of the funding you need. Taking the time to do this will make the process seem much less overwhelming.

Only a tiny percentage of people, it turns out, have a written plan with attainable objectives. So, take action now to set yourself apart and take advantage of the growing economy to get a piece of the pie.

Here are five ways to get your butt in gear and set yourself apart from the crowd.

1) Visualize yourself winning.

Think about the honors you’ll receive, the money you’ll make, and how you’ll spend it. Take into account who will be there to congratulate you on your accomplishment.

Is there anyone in your family who can help you? Visualize yourself accomplishing your objectives and feeling accomplished.

Studies show that an elevated emotion associated with a specific future event can alter brain chemistry. Visualization is a powerful and completely free tool. Please spend a few minutes putting it to good use.

2) Pay attention.
Make sure you know in detail what you want and how you’ll get there. Will you need to hire seven more people to meet your expansion goals? Forty-three more employees?

To increase your sales, do you need to hire more salespeople, get more leads, or do both?

3) Most importantly, make your goals attainable.

If you only have three employees, it’s unlikely that you’ll grow to 60. So, take your goals seriously and write them down. Along the way, you’ll want to celebrate your victories.

4) Make a schedule for achieving your goals.

Do you want to achieve a specific goal in the next three months? What will you do each day or week to meet your goals? As an example, consider the employee. Can you commit to attending at least one networking event per week and asking to be introduced to some of your industry’s best and brightest talent?

Will you work with a staffing firm? If that’s the case, when do you think you’ll be able to meet and screen as many people as possible this week? How many people will you meet with and screen?

5) Put your plan into action.

Some people make plans but don’t follow through. Get going right away. Make a move to achieve your goal right now. Setting up meetings, reaching out to industry contacts, and doing whatever else necessary to make it happen are examples of this. Take at least one action right now. Stop surfing the web, forget social media and pick up the phone and dial the number.

You may believe you’re overworked. We’re all capable of making excuses. What’s yours? We’re all trying to find a good work-life balance.

But where will you be at the end of the year if you do nothing?

A simple, actionable plan can easily set you apart from the competition. Get up, get out there and grab a piece of the pie because business is booming!

 

Don’t Take “No” for an Answer

Sometimes you need to stand your ground and be persistent to get the lending you need. If you don’t take no for an answer, eventually someone will be willing to help you out. Additionally, your determination and persistence will speak volumes. Never stop trying until you find a way to finance your business. It’s a mindset and you need to be persistent.

This doesn’t mean being argumentative and obnoxious. Understand your strengths and weaknesses. Shore up the weak links and try again.


Use Crowdfunding

There are plenty of sites out there that can help you fund your business if the more traditional methods aren’t working for you.

GoFundMe and Kickstarter are both excellent ways to get the funding you need. There are a lot of businesses that have found success through these methods. If you have a large social media following, this could be an excellent way to utilize that to grow your business.

Crowdfunding is a method of raising funds, assisting others in overcoming adversity and achieving aspirational goals that makes use of the power of social media and the internet.

The overarching principle of the crowdfunding explanation is that you can help a friend or an entire city. Everything from funding your own surgery to realizing an entrepreneur’s dream of starting a business—and much more—is possible.

Leverage Your Assets

Take a moment to look at your assets. You may have more than you realized. You can use these assets to raise money when you have poor credit. Refinancing your car or home can give you quick access to the equity that could help you build your business.

When a businesses’ working capital is insufficient to fund a business’s growth or meet expected monetary commitments like rent, employee payroll, and supplier invoices, the company must seek funding.

Banks, unfortunately, are not always willing to lend money, even in desperate situations. To assist your company in meeting its budget obligations, you must consider alternative ideas to borrow money for it.

Take Advantage of Your Ass-ets

Asset lending differs from traditional bank loans in that it uses (but is not limited to) your accounts receivable, payables, machinery, inventory, or real estate as collateral.

In an asset lending situation, a lender will typically allow a business to use a percentage of the value of its assets. This loan to value percentage could be as high as 90%.

For example, if an invoice gets paid off, the lender may increase the loan to 100% of the invoice value. This opportunity is a viable choice to attempting to get an unsecured loan to fund your business.

It can also assist in the establishment of a company’s credit history. If you plan to use your assets as security for a loan, ask the lender about any fees that may apply before autographing the loan documents.

Look for Investors

Investors are a great way to avoid having your credit speak for you. Investors will rarely check your credit score. Typically, they are much more interested in your business plan and the future of your business. There are online resources that you can use to help you find the right investors for your business.

Our top five suggestions for finding investors for your small business are as follows:

  1. Seek financial assistance from family or friends.
  2. Use the Small Business Administration to apply for a loan.
  3. Take a look at the private equity market.
  4. Make contact with companies or educational institutions in your field.
  5. Crowdfunding platforms can help you find investors.

Look for Online Options

When it comes to online lenders, many are willing to work with people who have less than perfect credit. Search for them and apply to any that you are able. Most of the time, you will only need to provide your bank account information, and you’ll have the funds in less than a day. You need to make sure that you research every lender you decide to work with here. Only work with reputable companies and watch out for scams.

Work With a Financial Professional

Financial professionals are a surefire way to help you find the best way to finance your business. They have connections that they can use to find the right lenders for you. They will also be able to help you find the right types of financial tools to restore your credit.

A financial advisor has the know-how and wisdom to assist you in making the most of your initial capital investment. They can help you determine whether or not your business model is viable and develop strategies and timelines for achieving profitability.

Bootstrap your Business

If you still can’t find any ways to fund your business, you can always get a job and funnel all of that money into your business. It can be rough and painful, but it’s still an option when you have no other choices remaining.

Bootstrapping is the method of commencing a business from the ground up with nothing but personal savings and, hopefully, sales proceeds. A bootstrapped company is when an entrepreneur builds his company with little or no outside funding or assistance.

These are just a few of the many different ways you can get a business loan with bad credit. It may feel like you’re always fighting an uphill battle, but there is money out there for business owners like you. Be persistent and always stay determined. Never give up. You will find the funds, and you will be able to take your business to the next level.

In Conclusion

At the end of the day, if you are determined enough, you can find funding for your business. Even if you have the worst of credit scores it is still possible. Find help from someone who specializes in finding business loans for bad credit. They can help you navigate the waters and find the best fit to get you approved.

When looking for a professional make sure to read reviews, look at what they have available, and feel them out before using them. Just because you have made some mistakes and drove your credit score down doesn’t mean you can’t be successful. With hard work, diligent research, and some creative thinking you can obtain the money you need using business loans for bad credit.

Have you obtained business loans for bad credit?

Have questions that we could help with? Get the best business loan in minutes with Sunwise Capital.

Take Your Business Further With A Loan From Sunwise Capital